Analysis finds program could reduce GHG emissions, reduce fuel consumption, and ‘enhance’ eneryg security

Sep 23rd, 2011 | By | Category: Featured Story

The Economic Analysis of a Program to Promote Clean Transportation Fuels in the Northeast/Mid-Atlantic Region released by NESCAUM (Northeast States for Coordinated Air Use Management), summarizes the results of an analysis of potential economic impacts of  reducing carbon emissions from transportation fuels in the eleven state northeast and  mid-Atlantic region. On a regional basis, the transportation sector accounts for about  one-third of all greenhouse gas (GHG) emissions. Nearly 100 percent of the  transportation fuel used in the region is imported from outside the eleven states.

There will be a public information meeting about this report Oct. 4, 2011, at the CT DEEP Headquarters, 79 Elm Street, Hartford in the Phoenix Auditorium (5th floor) at 1:30 PM.  At this meeting, NESCAUM staff will present on the assumptions and findings of their economic analysis, take questions and comments on the analysis, solicit alternative policy ideas, and discuss next steps. No RSVP required. We welcome attendance by anyone interested in this issue.

The results of the analysis suggest that the transition to lower carbon fuels could provide important energy security, climate change, and economic benefits in the region. For example, electricity, advanced biofuels, and natural gas are low carbon fuels not yet widely used in the region for transportation. A gradual transition to one or more of these fuels would reduce carbon emissions and those of other harmful pollutants, enhance energy independence and reduce vulnerability to price swings in imported petroleum, and create jobs in the region. The primary purpose of this report is to assist states as they evaluate the potential for implementing a regional clean fuels program that could reap
these benefits.

One of the policy tools under evaluation is a regional low carbon fuel standard or clean fuels standard (CFS), which is a fuel-neutral, market-based program that would require a reduction in the overall carbon intensity (CI) of the region’s transportation fuels over time. Carbon intensity is a measure of GHGs released throughout a fuel’s full lifecycle, including extraction, production, transport, combustion and indirect effects, per unit of energy produced. In simple terms, the program would work by assigning a CI score for all fuel pathways, calculating the average CI for the applicable pool of fuels at the beginning of the program, and establishing a target average CI value to be achieved by a specified date.

This program would allow all fuels to compete based on their greenhouse gas impacts and costs. It would create incentives for advances in biofuels and promote broader deployment of other low carbon transportation fuels such as electricity and natural gas. By establishing a standard of performance for fuels, such a program could create competition among producers leading to technological innovation, and would provide industry with flexibility to employ the most cost-effective approaches for meeting program requirements.

This analysis of the costs and benefits of a regional clean fuels standard is not designed as a forecast of future economic conditions, fuel prices, CI values, or rates of innovation and market penetration for low carbon fuels. Rather, the study’s design recognizes the significant uncertainties surrounding future values for important factors, and constructs several “what if?” scenarios with assumptions designed to explicitly address key uncertainties.

The results include modeled impacts on: (1) gasoline and diesel demand; (2) GHG emissions; (3) fuel expenditures, delivery infrastructure, and the vehicle mix; and (4) macroeconomic factors such as employment, gross regional product, real disposable personal income, and value-added changes by industry sector. Notably, the analysis did not attempt to identify and quantify other likely effects of the transition to cleaner fuels, such as improved public health and reduced health care costs.

Although this economic analysis focused on the evaluation of a generic CFS that achieves a specified CI reduction in given time period, the data and tools used in this assessment may help in the evaluation of other programs that achieve similar reductions in the carbon intensity of fuels.

Key Findings
This analysis found that the program analyzed could:
•  reduce GHG emissions by introducing more low carbon fuels into the transportation sector;
•  reduce gasoline and diesel use by 12 to 29 percent (4.0 to 8.7 billion gallons annually) once the program is fully implemented;
•  enhance energy security by diversifying transportation fuels away from those produced from imported oil and toward domestic alternatives such as advanced biofuels, electricity and natural gas with more stable prices;
•  achieve overall net savings on transportation costs when oil prices are high and near parity at low oil prices; and
•  achieve these goals with a small but positive impact on jobs, gross regional product, and disposable personal income within the region.

Other important findings based on this analysis include:
•  gasoline and diesel would continue as the dominant transportation fuels in the region for the next decade (providing from 80 to 87 percent of fuel energy use under low oil prices, and 73 to 81 percent of energy use under high oil prices);
•  among the low carbon fuels evaluated, electricity provides the largest reductions in petroleum energy use; and
•  greater volumes of low carbon fuels are needed when CI values are high; this results in higher overall costs (for fuels, infrastructure, and vehicles) to meet a given target compared to using fuels with low CI values, but also greater
reductions in gasoline and diesel use and more significant benefits associated with those reductions.

The most important variables driving the results of the analysis include:
•  the price of petroleum;
•  the price of low carbon alternatives (fuel, infrastructure and vehicles); and
•  the carbon intensity of petroleum and low carbon fuels.

A range of values were used to capture the underlying uncertainties in these variables to the extent feasible.

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